Markets To Remain Calm Ahead Of RBI-MPC Meet

Going ahead, market may witness stock-specific and sector-specific movement. Traders are advised to take a defensive stance. 

The market is expected to move sideways in the coming truncated week as it will have only four trading sessions beginning Tuesday, December 1. The market will be closed for trading on Monday on account of Guru Nanak Jayanti. 

The Reserve Bank of India (RBI)’s Monetary Policy Committee (MPC) will hold its bi-monthly meeting in Mumbai next week. Market participants will take cues from its measures on rising inflation, and any growth forecast.

RBI is expected to maintain an accommodative stance in the wake of slow recovery seen in the second quarter. Rising inflation should be a cause of concern for the MPC.

India’s benchmark indices Nifty and Sensex crossed the record level of 13,000 and 44,000, respectively, for the first time buoyed by sentiments that ran high. The US markets too were buoyant, and its premier benchmark, The Dow Jones Industrial Average (DJIA), crossed the 30,000 level for the first time, last week.

More than satisfactory development on the vaccine development front improved sentiments across the globe. The tussle between Democrats and Republicans on the transition of power is waning. Indications that President-elect Joe Biden will be able to take over smoothly is getting more apparent by the day. 

Back home, India’s economy contracted just 7.5 per cent in the quarter ended September 30, lower than an expected 8.5 per cent. This has fueled hopes of a faster recovery in the second half of 2020-21.

Foreign players have continued pumping money in the Indian markets based on better than expected performance of India Inc in the quarter ended September 30. It is expected to improve further. Foreign Portfolio Investors (FPIs) brought Indian equities worth $6.7 billion in November till date, making India the third-most preferred investment destination in Asia after Japan and Korea.

Sanjeev Zarbade, Vice President, PCG Research, Kotak Securities said: “FPIs bought equities worth $2.05 billion over the past five trading sessions. Domestic institutions sold $1.8 billion worth of equities in the same period.”

There is no doubt that FPIs have played a significant role in the roller-coaster rise witnessed in the Indian markets. Though they have sold over Rs 76,000 crore in March, April and September, they resumed buying aggressively from October. They are a net buyer this Year Till Date (YTD) to the tune of Rs 1,08,26 crore. 

In addition to stellar corporate earning numbers, there is an expectation of an increase in the India weightage in MSCI Global Standard Index that will be effective November 30. This will result in many international funds’ portfolio churn towards India. In anticipation of this, India witnessed hefty fund inflows. 

Market sentiments are majorly driving the current liquidity and optimism-led rally. “It is time to be cautious,” said Nirali Shah, Senior Research Analyst, Samco Securities on the exuberance of FPIs. 

During such a mad chase for momentum, investors often disregard fundamentals. FPIs and DIIs collectively could push markets higher. But, any unpleasant event could cause corrections. Risk and reward are unfavourable for both traders and investors currently.   

With the churn in MSCI Index components, it seems unlikely that the FPIs will continue to invest in India with the same aggression in the weeks ahead. FPI and DII behaviour will exert pressure on D-Street going forward, which might lead to a correction according to Shah.

Benchmark indices ended with minor positive gains for four consecutive weeks. Majority of sectoral indices ended the week on a positive note with metals and pharma indices remaining top performers. 

Nifty Bank, the best performer among sectoral indices, is exhibiting signs of slowing down. The banking sector has close to 40 per cent weightage in the Nifty. As the Nifty Bank is slowing down, the momentum seen in Nifty is also expected to bring a breather. 

As a result, markets are not likely to show any significant movement in the coming days-weeks. Also, there is hardly any room for MPC to cut the rates. World over global investors will go holidaying. In the near-term market may witness stock specific and sector-specific movement.

“Outlook for the short term is bullish,” said Shah. “But as benchmark indices are trading at over-bought, we suggest traders take a defensive stance and lighten the aggressive bets. Immediate support and resistance for Nifty are now placed at 12,750 and 13,150, respectively.”